LIM homeobox transcription factor 1 alpha (Lmx1a) is required for the development of midbrain dopaminergic neurons, roof plate formation, and cortical hem development. We generated a reporter embryonic stem cell (ESC) line for Lmx1a and used it to track differentiation and extract neural progenitors from differentiating mouse ESCs. Lmx1a+ cells gave rise to functional cortical upper layer GABAergic neurons or dopaminergic neurons depending on the culture conditions used for differentiation. Under chemically defined neurobasal conditions, ESC differentiation resulted in widespread and transient expression of Lmx1a, without the addition of exogenous factors such as sonic hedgehog (Shh), Wnts, and/or bone morphogenic proteins (BMPs). Under neutral conditions, Lmx1a+ cells express genes known to be downstream of Lmx1a and cortical hem markers Wnt3a and p73. The majority of these cells did not express the ventral midbrain dopaminergic marker Foxa2 or dorsal roof plate marker BMP-2. Lmx1a+-Foxa2− cells were primed to become SatB2+ GABAergic neurons and appeared to be resistant to dopaminergic patterning cues. PA6 coculture produced a substantial population of Lmx1a+ progenitors that also expressed Foxa2 and on further differentiation gave rise to dopaminergic neurons at high frequency. We conclude that Lmx1a is a useful marker for the extraction of progenitors of GABAergic or dopaminergic neurons. We caution against the assumption that it indicates dopaminergic commitment during in vitro differentiation of ESCs. Indeed, in monolayer culture under neurobasal conditions, with or without the addition of Shh and fibroblast growth factor 8 (FGF8), Lmx1a+ cells were predominantly progenitors of forebrain GABAergic neurons. We obtained dopaminergic cells in large numbers only by coculture with PA6 cells.